Wednesday, January 31, 2007

Electronic bill paying is a great banking service because it benefits everybody. Banks do it because it's cheaper for them with no paper to handle. Payees like it because it is faster and cheaper to handle. Best of all, I love it because it's better for the payer. Here are the better-for-payer reasons:

Saves money. I save a $0.39 stamp, an envelope and a check. It may seem small, but combine the 10+ bills we pay per month (on average) and it adds up - $3.90 a month and about $50 per year. That doesn't include envelopes, checks and other miscellaneous costs.

Saves time. After investing the time to set up the service, paying a bill only involves a few clicks and typing in the amount and payment date. Compare this to writing out each check, stuffing the elements in an envelope and taking them to the nearest mailbox.

No stress about late payments. Most bill payment services will guarantee payment within 3 days of submission. In my experience, should the bill be late, the bill paying service will rectify the situation.

My bill paying service currently only does automatic payments for recurring payments of the same value, such as our mortgage. So we still have to physically enter the amount and date in our bill paying information. When we were in Japan, the bank would do automatic payments for utilities and credit cards, which had different payment values each month. I look forward to this type of service being provided in the future.

For more articles on The Practice of Personal Finance, check back every Wednesday for a new segment.

My Carnival choice is from A Financial Revolution which posted What the Hell is Beta? He provides a good layman's explanation of Beta and how to think about using Beta when doing analyses for investing.

I hope you enjoy reading these Carnivals and finding tips you can use. Check back every Tuesday for the Ideas You Can Use segment.

Monday, January 29, 2007

Here's is a provocative thought: All of us should think that our current job may be obsoleted in the next 5-10 years.

Do I really know exactly what is going to happen? Of course not. If I did, I would make a fortune by betting on that future:-) However, I can see the macro trends that will likely happen. In the agricultural and industrial revolution, there were major shifts in which jobs were needed and which were not. And the information revolution changes are happening faster and to more areas than ever before.

My mindset is that my current job will likely be very different in the next 5 years. Even if I am able to do my job with excellence, that won't be enough. I will need to do something better, different or more impactful. I don't know exactly what yet, but I do know it will happen.

What can I do about it?

Perhaps the question is "What MUST I do about it?" If I assume that I must change, then here are some things I can do.

Continually grow. In How to Become CEO, Jeffrey Fox writes that growing involves adding new skills and knowledge to one's life every year. I would add, especially, in areas that may be of future importance to one's career. Better yet, grow mastery in those areas. Originally, I was going to write that the following growth areas are important: innovation, biotechnology, and scientific/complexity modeling. However, based on a conversation with my father-in-law, I now believe the three topics may too specific and propose that a broader growth area of focus should be critical thinking skills. Having critical thinking skills will be important to each of those three categories. In addition, having critical thinking skills will enable one to better change the direction of one's work.

Reinvent oneself early and often. In Discover Your Strengths, Marcus Buckingham writes that most people are predisposed to emphasize their strengths and that people will excel when using those strengths. The challenge, of course, is to ensure your strengths are used against the most important areas for your company. Too often, people continue to apply their strengths to areas that are no longer of priority.

I know a consultant who was an expert in six sigma when quality was the rage. He was an excellent facilitator who helped teams use that knowledge. However, today, "innovation" is the focus for most businesses. Rather than continue to focus on quality, he reinvented himself as an "innovation" facilitator and still has very good business.

Personally, continual growth and reinvention are two areas on which I have motivation to work. With the rapid changes in our economy and businesses, I believe continual growth and reinvention are my insurance against my career becoming extinct.

For more Strategies and Plans , check back every Monday for a new segment.

This is not financial or career advice. Please consult a professional advisor.

Sunday, January 28, 2007

In two earlier posts, I wrote about opening a UTMA (Uniform Transfer to Minors Account) account to fund our daughter's allowance (with tax free earnings) and on how I was getting bonuses for opening new accounts. As always, I am not a fan of opening an account to get a bonus. However, this another case of needing a new account and getting the most from opening one.

I have decided to proceed with the plan I outlined on using a UTMA to fund our daughter's allowance. The benefit is that all the earnings in the UTMA account will be tax exempt (up to $850) and my interpretation is that an allowance is an appropriate use of the funds that enable the account to maintain tax exempt status. In looking for a new account, I recall that TD Ameritrade had previously offered a free IPod promotion for new account (not new person) openings. It turns out TD Ameritrade is again offering the same promotion, with a $10,000 deposit for 9 months. The offer expires on February 28, 2007.

This is a terrific win/win/win. First, our daughter's allowance will be funded until she is 18. Second, we will get an IPod Nano, which my spouse would like to use. Third, I will be sheltering about $500 of income from taxes.

Here is the link to the TD Ameritrade IPod Nano Offer. Also, if you already have a hard copy application, the Promo code is 931, which can be written in any open space at the top of the application. Call TD Ameritrade at 1-800-934-4448 to confirm. I am passing this information along as a service to our Personal Finance community. Disclosure: I am not receiving any compensation for this post nor any referral fee for the link or Promo code.

Enjoy!!!

For more on New Beginnings, check back every Sunday for a new segment.

Saturday, January 27, 2007

Recently a new website has been republishing the full content feeds of personal finance blogs without contacting some of the authors for permission. Unfortunately, the content of My Wealth Builder is one of the blogs being republished without such permission. To remedy the situation, I am changing to partial feeds, which will limit the website's ability to republish the entire post. My apologies for this inconvenience to regular readers of the full feeds.

Turning Lemons to Lemonade

While the actions of this website caused concern at first, my creativity training enables me to look for the positive aspects of the situation :-)

Imitation is a form of flattery. I am flattered that My Wealth Builder is considered worthy enough to be republished. In August, 2006, when I started posting, My Wealth Builder had only one reader, me.

My Wealth Builder will get more readers. The new website will serve as an aggregrator of content. Because only partial feeds of My Wealth Builder will be shown on the new website, readers will need to go to My Wealth Builder to get the full content.

New work is created for enterprising lawyers. The copyright space is one that is being redefined constantly with technological advances, (e.g. Napster, Google Books, YouTube etc.) I expect that in the future, this will become an area of evaluation. To note, I am not an attorney and I am not planning to take any legal action.

For more Reflections and Musings, check back every Saturday for a new segment.

Overall, all the calculators provided reasonable estimates, if one was within 5 years of retirement. However, my assessment is that all the calculators underestimated retirement needs for those over 10 years from retirement. This is because the calculator does not account for the fact that many will increase their income faster than inflation, due to promotions or job changes. In addition, Golbguru found that the Fidelity Calculator reduced one's retirement nest egg needs if one retired at 60 or under, showing another glitch in this calculator. ( I did not test for this error in the four calculators I evaluated.)

What to do?

Within 5 years from retiring. Use the calculator to get an approximate estimate of whether you have sufficient savings for retirement. Contact a financial advisor who can help you do a more detailed assessment, preferably using a Monte Carlo simulation.

More than 10 years from retiring. The calculators will provide a retirement savings number based on inflation adjustments to one's salary. Thus, if one's standard of living will be constant, the calculator provides a reasonable minimum estimate. However, whenever one's salary increases faster than inflation, it would be helpful to input the new salary numbers into a calculator.

For everybody. My opinion is that it is a worthwhile exercise to consult a good financial advisor to help one navigate the complexities of retirement, with social security changes, investment options and increasing life expectancies. Personally, I think analyses such as a Monte Carlo simulation provide good details on possible scenarios.

Also, the "best practice" recommendations for retirement are evolving and have been changing fairly quickly. For example, the old recommendation was to take social security payments as early as possible. The current recommendation is for married couples to delay taking social security payments as long as possible. This is because longer joint life expectancies have made the total payout larger for those that can wait.

For more on Reaping the Rewards, check back every Friday for a new segment.

Thursday, January 25, 2007

There are lots of instances when financial reality is different from financial perception. The difference can be very confusing to children.

Financial Perception

Example 1 - When I was about four years old, I remember becoming frantic when my uncle paid cash for a gasoline purchase. I kept telling him that my dad had a plastic card that enabled him to get gas without using any money. I recall thinking that my uncle was wasting money because he didn' t have a plastic card.

Initially, both my dad and uncle couldn't figure out why I was so frantic. When my dad finally understood, I recall they both had a good laugh.

Example 2 - A colleague at work told me that her children don't understand that an ATM dispenses money from one's bank accounts. They believe that an ATM is a place to go to get money that one doesn't have but needs. The children believed the ATM was an endless supply of money.

Example 3 - Last year I drove by a house I knew was going to be auctioned in a sheriff's sale. The people appeared to be doing well financially. The appraised price of the house was around $400,000. There were two nice cars, including a BMW SUV in the driveway.

Explain the Reality

Remember that financial reality generally prevails. For children, my solution is to explain the situation or tell the "rest of the story". For example, I can show the child that I also deposit money into the ATM. I can explain or show that I pay a bill every month for my credit card. Hopefully, my children will benefit from understanding the reality versus believing the perception.

For more on Crossing Generations , check back every Thursday for a new segment.

Wednesday, January 24, 2007

As I wrote in a previous post, I am bullish for the early part of 2007. The trouble is that my stock picking system had not identified any outstanding buys. That changed last week. Here are the picks from my system that I will or have purchased: Avnet (AVT), CB Richard Ellis (CBG), Coach (COH), Apple (AAPL), Biogen Idec (BIIB), Genlyte (GLYT). Stocks that qualified but I am not purchasing at this time: Cognizant Technology (CTSH), Nordstrom (JWN) and American International Group (AIG).

On 1/22/07, I also purchased 100 shares of Avnet @ $26.10 for our taxable account. I did not purchase Apple since we already own it. In addition, my limit orders for CB Richard Ellis did not execute in the taxable or IRA accounts. I will likely try to buy this stock later.

For reference, I base my system on the Unemotional Growth System from the book The Unemotional Investor by Robert Sheard, with the following modifications. First, I look at the top 20 stocks. In addition, I have found that avoiding the stocks that have a high percentage of shorted shares and investing when the Value Line weekly Rank 1 turnover is low are good additions to his Unemotional Growth criteria. I did not rigorously test these additional criteria. However, in the year that I have been using this system, the additional criteria have worked well.

I like the systems provided by The Unemotional Investor, because they have buy and sell signals. And it takes the emotion out of buying and selling a stock. To note, I still use some judgement since I don't always follow the rules exactly:-)

For more information on the The Unemotional Investor styles, see the book by Robert Sheard.

Disclosure: This site receives a sales commission from Amazon.com for purchases made through this link. This commission has no effect on the price or service. The buyer will get the same price and great service that they would normally receive from Amazon.com.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

Monday, January 22, 2007

Job extinction, it could happen at anybody. Yesterday’s secure job can be tomorrow’s outsourced job. What used to take decades to occur is now happening in less that a decade.

Here are five signs that job extinction may be happening to your role at the company:

Number 5 – You are doing almost exactly the same work you did 5 years ago. You haven’t had to learn anything new to do your job in the past 5 years.

Number 4 - Your job is protected (by government regulation, or other non-market means) and you do not talk to your customers and end users.

Number 3 – Automated computers or robots can do your job and are doing it at other companies.

Number 2 – China and India now make the same products or provide the same services. The quality is as good as yours and the cost is significantly lower. Another even worse scenario, Thailand and Vietnam are the regions of competition. Even the Chinese and Indian businesses fear these countries.

Sunday, January 21, 2007

This year, I am segregating business second income sources into separate accounts. This will help me keep a good accounting of income and costs of these activities. To do this, I have opened up separate checking, saving and credit card accounts for second income activities.

To my pleasant surprise, many of the accounts had advertised and unadvertised cash bonuses. Although I had been aware of some bonuses from various personal finance blogs, I was not actively trying to qualify for them. Mainly, for me, the bonus are not generally worth the additional effort to manage another account. However, since I now need other accounts, getting the bonuses has become an opportunity :-)

Here are the new accounts I set up, which had bonuses:

Checking account at local bank. I created this account to receive payments from PayPal and Google. They gave the account a $50 bonus for using automatic direct deposit, which occurred when Google made a deposit. This $50 bonus was a big surprise since it was not advertised when I opened the account

Visa card. This card will be used for all credit charges for the second income business. They provided a $50 bonus after the first charge was made.

ING savings account. Soon after opening the no interest checking account, I received a promotional $25 bonus to open a 4.5% interest savings account. I opened that account yesterday and linked it to the checking account.

Here is the account I opened which didn't have, or I missed, a bonus:

PayPal account. I created this account to receive payments from an advertising agency. I was not aware of nor was I looking for any account opening bonuses for PayPal.

It was a great beginning in 2007 to generate $125 in second income for accounts that I already needed to create.

For more on New Beginnings, check back every Sunday for a new segment.

Saturday, January 20, 2007

Last week I bought gasoline for $1.96 per gallon and crude oil is about $50 per barrel. It wasn't long ago predictions were made that gasoline would be over $4 a gallon and crude oil would be over $100 a barrel. So what happened?

People adjust. As gasoline and oil prices rose, people began to change their habits by driving less, lowering the thermostat, or driving at the speed limit. Of course, some people change immediately, some take a while and some never change. Thus, there is a lag before there is lower oil usage, which results in lower prices. For reference, the 30 member countries in the Organization for Economic Cooperation and Development (OECD) saw oil consumption drop 0.6% in 2006, the first drop in more than 20 years.

Regression to actual value. Over time, the actual price will get closer to the real value of an item. Recently, this phenomena has happened to gold and to tech stocks (2000-2002) and is currently happening to housing. Eventually, the excesses of the market are absorbed and the prices settle back to reality.

Unusual circumstances. This winter has been unseasonably warm, resulting in lower heating needs. Thus, less oil has been used, resulting in lower gasoline prices.

While I am enjoying the lower gasoline prices, I am not expecting them to go much lower for exactly the same reasons given above. People will start using more gasoline, the decline in prices has likely overshot and gone too low, and summer/winter temperatures will become more normal. For my financial planning, I am using an estimate that gasoline will be in the low $2 range in the near term.

For more on Reflections and Musings , check back every Saturday for a new segment.

Friday, January 19, 2007

Overall, I thought the NASD Retirement Calculator was a reasonably accurate estimator for how much is needed if one is close to retirement, e.g. with 5 years.

However, if one is more than 10 years from retirement, you may need to make an adjustment to one’s estimated salary. The calculator does not account for the possibility that your salary may grow faster than inflation during your early working years – e.g. due to promotions or job changes. For those that are 10 or more years from retirement, it may be necessary to project what your future salary may be and put the present value in the salary column. (For specifics on this economic-speak, see example #2 below.)

Example 2 – Em. S. Grad is 35 years old and plans to retire at 65. He has the same information as Will except for #4, which is 30 years. In addition, Em expects to retire as a Division Manager, which has a current salary of $150,000.

Amount needed for retirement: $1,240,163. And the calculator recommends saving $6,761 per year (non inflation adjusted) until retirement to reach this goal.

To account for a higher salary due to promotion or job change, I recommend that Em should use the present salary of the position he expects have in the future. For example, if Em expects to be a division manager when he retires, he should input the $150,000 salary of a division manager today. With this adjustment, here is what Em would need for a retirement nest egg: $6,848,968. This would represent the high side retirement savings target.

Disclaimer: Examples are illustrative purposes only. Your results will vary with different inputs and assumptions. As with all retirement calculators, please consult with your financial advisor before taking any actions.

Next week – a summary of the four retirement calculator evaluations.

For more on retirement, check back every Friday for a new Reaping the Rewards segment.

Thursday, January 18, 2007

While creating wealth is challenging, keeping that wealth is often the bigger challenge. An article titled How to Beat the Midas Curse had some sobering statistics on wealth destruction: 6 out of 10 families will lose the family fortune by the end of the second generation, 9 out of 10 by the end of the third generation.

Why? According to the article, the reason is that parents generally do not sufficiently prepare their offspring to handle wealth. They want their kids to have an easier life and avoid experiencing the hard work of making money. Unfortunately, shielding the children has an unintended effect of creating a poor understanding of how to handle money.

One way to address this is to train ourselves and our children to be stewards of the family wealth.

Have family discussions about money. This is difficult, but important, to do. Conversations between the parents should occur first, then with the rest of the family. Goals and plans should be developed for the family. The basis for decisions involving money should be explained to children.

Teach children how to handle money early. Give children responsibility for their part of the family money. Provide allowances and teach them to save, share (i.e. donate to charity) and spend. Let them make choices on purchases they can make and on investment of their savings.

Create a mindset of wealth preservation. Be future focused and think what is needed to have the family wealth last for two, three and even more generations. Learn about (or get professional advice) on proven options (e.g. trusts) that work. Put some of the options in place.

I know that some readers may think that it is silly to think out several generations, when one may not be here. For me, the values and stewardship mentality, more so than the money, are the great legacy that can be left to my descendants.

For more posts on Crossing Generations, check back every Thursday for a new segment.

Wednesday, January 17, 2007

One of the personal finance practices I use is to pay cash for my cars. After a house, a car is generally the largest single expenditure that is made. Thus, a car is also the largest opportunity for me to reduce spending. Paying cash causes me to spend less when buying a car. (For more coverage on the cost of cars and the impact on personal finances, see recent articles in MSN.com and Yahoo! Finance.)

However, it is often easier to spend more, versus less, when buying a car. One reason is that the cost can be spread out over 4 to 6 years of monthly payments. At a loan rate of 7%, the cost of an extra $1000 is between $17.05 per month (for a 6 year loan) to $23.95 per month (for a 4 year loan). It's easy to justify a premium stereo for "only" $17 to $24 a month. That's barely the cost a meal. The salesman knows that, the finance manager knows that, and the buyer knows that. Before long, one is paying about $200 more per month to get a car that cost $8000 more.

For me, the solution is to get the comparison back to the real numbers. That's where paying cash for a car helps. It puts the decision on the real money difference, not the monthly difference. It's not $24 a month more for a premium stereo, it's $1000. For $24, I barely think about it. For $1000, I think hard about it and pass. Paying cash causes me to ask the question, "Do I really need that?" when considering car options.

So how can one save enough to buy a car? It's easy if one is already making a car payment. The secret to keep the car several years after it is paid off AND keep making "car payments" to one's savings account. Thus, after 5 to 6 years, there is enough money to purchase the next car with cash.

Here's an example of how it can work. After paying off the car loan in three years, I continued to make "car payments" to myself. Because I kept the car for 10 years, I made $232 "car payments" to a savings account for 7 years, resulting in over $19,000 saved. That money was used as a cash payment for our next car.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

Tuesday, January 16, 2007

There were over 70 excellent posts in this Carnival. It was difficult to narrow down the choices to only two Carnival picks. In my first Carnival pick, FMF explains the biggest barrier to becoming wealthy at Free Money Finance. Hint: It's not how much one makes, it's how the money is being used. For the second Carnival pick, No Credit Needed shares his 2007 goals. NCN has a challenging goal of saving 60% of his gross income for 2007. Wow!

Monday, January 15, 2007

"Without goals, and plans to reach them, you are like a ship that has set sail with no destination." -- Fitzhugh Dodson

Over the past four months I have been sharing different approaches I use to build my wealth. Stepping back, I’d like to summarize how these approaches fit into the overall wealth building plans.

Most important, one has to have an overarching life goal, which I shared in a previous post. My life goal is:

It would be great if we (spouse and children included) are highly productive and contributing members of society and have fulfilling lives.

To support this goal, I have developed three strategies for building wealth.

Maintain a Frugal Lifestyle and Save Most of the posts in My Wealth Builder have been focused on frugal living and savings. Regular readers of My Wealth Builder have read the numerous exhortations of save and don’t spend. Here are my favorite posts for this strategy element:

As savings increase, one gets a new set of worries – i.e. how to make sure one doesn’t lose one's wealth. My goal is to also grow your savings and don’t let inflation eat it away. Here are my favorite posts on this strategy element:

Grow My Income (Faster Than Expenses Grow) If one's income doesn’t grow, it is impossible to save one's way to glory. Inflation and necessary higher expenses (e.g. children) will require a higher income over time. However, just depending on cost of living raises isn’t sufficient. One must continue to grow one’s capability and contributions. This will lead to more responsibility, which usually leads to more compensation. Here are my strategies for growing income.

Sunday, January 14, 2007

Today My Wealth Builder will be making some minor updates. First, My Wealth Builder will be converting from Blogger to New Blogger. I received the first conversion request in mid December, 2006. I received the second notice this weekend. I expect that I will receive a final "must change" notice in another month :-) Having done all the necessary backup and preparation, I will initiate the conversion today. If there are bugs with the conversion, I may miss a few days of publishing. If the issue lasts longer than a week, please check My Blog Builder, another blog I just started. If I cannot publish to My Wealth Builder, I will post updates about the issues in My Blog Builder.

Second, on January 1, 2007, I had switched my RSS feeds to be partial text instead of full text. Based on comments from readers, My Wealth Builder feeds have been changed back to full text.

Update: The conversion to New Blogger went very well. I initiated the conversion at 1:56PM and it was completed by 2:01PM. All the Blogger blogs transferred with no errors or issues. The only glitch I have found is the blogs using the "classic templates" get an error message that the web page may not load correctly. Congratulations to the Google team working on New Blogger conversions.

For more on New Beginnings, check back every Sunday for a new segment.

Saturday, January 13, 2007

A while back, I was teaching our two year old daughter to count. When I held up one finger, she said "one." When I held up two fingers, she said "rabbit." When I held up three fingers, she said" W." Prior to taking a creativity course last year, I would have immediately said, "Wrong, this is 'two' and this is 'three'." Instead, I said, "Yes, that's also right," and we continued to learn the numbers.

Of course, to survive in the this world, she will need to recognize what is "two" and "three" because they are the "right" answers. (After all, who would understand rabbit million dollars:-) However, being creative and innovative will also be important skills for her future. The thought caused me to reflect that there are times to be right, and there are times to be creative. I definitely want the engineering calcuations for the structural strength of my house to be "right," - i.e. use "two" instead of "rabbit." However, if I am trying to invent something, perhaps "rabbit" is the better answer than "two."

Past childhood, right answers become the norm and the expectation. My daughter reminded me that creativity comes from seeing the same thing everyone sees but in a different way. Having the skill for creativity is important. Creativity can lead to new ideas and new ideas can lead to invention.

Counting now has new meaning for me. From now on, it's "one, rabbit, W ...."

For more Reflections and Musings, check back every Saturday for a new segment.

Friday, January 12, 2007

Late retirements can be hazardous to your life. That could be a conclusion of a study was done by Dr. Ephrem (Siao Chung) Cheng using pension check data from Boeing retirees. Since there were excellent records for pension distributions, Dr. Cheng was able to track the exact age for retirement and death for those in the study.

The results of the study, in the table below, showed people who retired younger lived longer. While the study did not determine the cause, some speculate that younger retirees may have had more resources to maintain a good lifestyle. Others speculate that the additional years of stress on older workers may have caused more health issues.

Age at Retirement

Average Age At Death

49.9

86

51.2

85.3

52.5

84.6

53.8

83.9

55.1

83.2

56.4

82.5

57.2

81.4

58.3

80

59.2

78.5

60.1

76.8

61

74.5

62.1

71.8

63.1

69.3

64.1

67.9

65.2

66.8

Since the study is about 25 years old, the conclusions may not directly apply to today's workers. However, the fact that the difference in longevity existed at one time, motivates me to strive for the earliest possible retirement.

For more on articles on retirement, check back every Friday for a new Reaping the Rewards segment.

This is not financial, health or retirement advice. Please consult a professional advisor.

Thursday, January 11, 2007

The Uniform Transfers to Minors Act (UTMA) or the earlier Uniform Gift to Minors Act (UGMA) allows a parent to give a gift to a child and have custodial rights for that gift until the child turns 18. Once a UTMA is established, the funds belong to the child. At age 18, the funds of the UTMA account transfer completely to the child. A benefit of a UTMA is that the first $850 of income is exempt from taxes. To maintain this tax benefit, the funds must be used for the child and for other than required support expenses.

Fund Allowances with a UTMA

After reading the regulations, I believe a legitimate use of a UTMA, that maintains the tax benefit status, is to fund the child's future allowances. In addition, the UTMA allowance account could be designed to be zero before he goes to college.

For example, if a child's allowance per week is equal to twice his age, he will receive $17,784 in allowance through the age of 18. To fund $17,784 of allowance would require putting $9,195 at birth and earning 5% interest. In each succeeding year, the child would receive a weekly allowance equal to twice his age. The child can spend this money as he chooses. In his 18th year, the UTMA account would be depleted to zero.

Net, $8,589 of interest would be earned tax free and used to fund the allowance. This allows an initial contribution of $9,195 to yield $17,784 in total allowance over 18 years. The table below shows how the UTMA account would be grow and the be depleted by allowance payments over 18 years.

Age

YearlyAllowance

UTMAAccount

Birth

0

$9195

1

$104

$9,655

2

$208

$10,028

3

$312

$10,311

4

$416

$10,499

5

$520

$10,587

6

$624

$10,570

7

$728

$10,444

8

$832

$10,202

9

$936

$9,838

10

$1,040

$8723

11

$1,144

$8,722

12

$1,248

$7,958

13

$1,352

$7,045

14

$1,456

$5,978

15

$1,560

$4,748

16

$1,664

$3,347

17

$1,768

$1,767

18

$1,872

$0

For more financial topics on previous and future generations, check back every Thursday for the Crossing Generations segment.

Wednesday, January 10, 2007

When I managed our bills, I had a just-in-time payment system. I rationalized that I was maximizing the interest earned on our money by doing this. My wife now manages our bills and uses a different method. She pays our bills right away. After seeing both methods in action, I prefer the "pay right away" method. Here are the reasons:

Payments are ALWAYS on time. While I was very good at meeting the payment due date, I would occasionally miss a deadline. To remedy the situation, I would call the creditor and ask for forgiveness. Usually, the late payment charge and interest were removed. Now that we pay right away and never miss a due date.

There is a buffer for errors. When I missed a due date, sometimes it was my fault and other times, the mail system was at fault. Since we now pay right away, a delay of a few days doesn't make any difference. The due date is still over two weeks away.

Any penalty was usually greater than the interest earned. Delaying a payment of $1000 until the due date earns about about $3 interest for a month. However, the penalty for missing the payment would be $10 to $20 for that month.

More mind space. Since I don't need to worry about meeting the due dates, I can invest time thinking about other ways to increase our wealth:-)

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

Tuesday, January 09, 2007

This is an excellent Carnival done to a comic book superhero theme. There were too many great posts to choose one Carnival pick. So I'll just highlight my submission that evaluates the Vanguard Retirement Calculator :-)

Consolidate tax records by end of month for April 15th filing. Get preliminary estimate of capital gains from stock investments.

Adjust automatic savings deposits to be 20% of salary.

Review stock selection model and invest in picks.

Allocate a portion of 401K to international funds.

Executor work - complete transfer of assets to trust.

February

Do first draft of 2006 tax return.

Make full year contribution to Church via appreciated stock.

Executor work - complete getting basis for 2005 and 2006 returns.

March

Final draft of 2006 tax return.

Review Company retirement plan results.

Calculate Q1 Wealth Ratios.

April

File 2006 tax returns.

Meet with Financial Advisor to review investments status.

Review stock selection model and adjust holdings.

May

Revise withholding to minimize tax refunds based on 2006 tax return.

June

Review Company retirement plan results.

Calculate Q2 Wealth Ratios.

Review 529 plan investments and make changes if needed.

July

Meet with Financial Advisor to review status and make mid-year changes.

Review stock selection model and adjust holdings.

August

Make charitable contribution of goods to church festival.

September

Review Company retirement plan results.

Calculate Q3 Wealth Ratios.

October

Review investment portfolio for stocks to sell at a loss to offset gains.

Review stock selection model and adjust holdings.

Meet with Financial Advisor to review status and make changes.

Make charitable contribution to United Way via appreciated stock.

Make charitable contribution of goods to the Salvation Army.

November

Pay additional mortgage principal if possible.

Buy or sell stocks to avoid the wash sale rule.

December

Review Company retirement plan results.

Calculate Q4 Wealth Ratios.

Sell any additional losses to offset gains.

Make final charitable contribution of goods to Salvation Army.

While I have given myself the whole year to complete the goals, I like to get a good jump on them early in the year. Therefore, I have front loaded completion of some of my 2007 action steps (e.g. mortgage principal payment, IRA and College Savings Plan contributions) into January.

New items will be added (in green) as needed. Also, as items are completed, I will signify with a strikeout. I will also include the month completed, if it is different from the original plan.

Sunday, January 07, 2007

Life if full of challenges. Our journey is to chip away at these challenges and then face new challenges. Always be ready for the cheese to move. (For the relevance of this comment, see Has Your Cheese Moved?)

While a relatively small change, it appears that I will soon be "required" to transfer My Wealth Builder to the New Blogger. I have been putting this off since I received the message in mid December. Having just learned how to use Blogger since August, I was not looking forward to a conversion and learning new software again.

While this is not a drastic as major changes (e.g. required job change), I thought it could be a good example of one way to deal with change (moving cheese:-). First, I am not looking forward to this change since several bloggers have had difficult transitions, resulting in their blog being inaccessible for a period of time. In addition, the support from Google appears to be insufficient for some with issues. However, rather than avoid the change, I took steps to "go back into the maze" and learn how to manage the change.

Here's how I am approaching this change:

Learn from the experience of others. I read through blogger help forums to understand the issues. It seems some of the issues may be caused by user error. One blog, Beta Blogger for Dummies , had particularly useful advice on backing up content, templates and making the transition.

Backup important information and content. Based on what I read, my plan was to:

Backup post content. I did this by copying the source coding from each web page to a notepad file. I backed up each archive month.

Backup templates. I copied the most recent Blogger templates to a notepad file.

Run a preliminary test. I created a New Blogger account and created a new blog in which I could experiment. I was able to confirm that my old Blogger templates would transfer if I maintained the "classic" template. In addition, I began to experiment with New Blogger. Using information from Beta Blogger for Dummies, I was able to create a three column format on New Blogger that almost replicated my current design.

I still need to some of my HTML code in Blogger to be completely compatible with XHTML of New Blogger. I have already confirmed that some of my text link ads are not compatible with XHTML. However, the text link ads did transfer under the "classic" template.

Wait for New Blogger to work out bugs. I will wait for a final notice before making the change. Hopefully, every day means that a few more bugs will be solved. New software is one area where waiting a bit longer to change can be a positive:-)

Saturday, January 06, 2007

I Make $6.50 An Hour, Am I Poor? is an MSN.com article is about how, Karen Datko, a 52 year old woman lost her job and slipped from middle class into near poverty. The article has a positive spin, Karen has avoided borrowing from her retirement savings, cut back living costs and taken multiple jobs in order to meeting financial commitments. While she has "no illusions" about returning to her former job, Karen has a positive can-do attitude about finding solutions to help deal with her situation.

The article has caused me to reflect about how dependent our financial security is on a regular paycheck. And how the loss of one's job can put oneself at significant financial risk. Losing a job could happen to anybody, including me.

Here are some strategies on protecting myself and my family for this risk:

Build a Bigger Emergency Fund. While most experts recommend 3 to 6 months of emergency funds, I think this level may not be sufficient for people who are married and with children. For example, a single person in their 20's has fewer fixed financial responsibilities (e.g. no mortgage) and can use many options to get a new job or reduce expenses, including move to a new location or moving back with parents (however undesirable this may be:-) On the other hand, a person who is married, with children and a large mortgage may have less degrees of freedom. Therefore, it may more difficult to reduce expenses or find a new job, and require a longer use of an emergency fund.

For my own personal situation, an emergency fund of of one year's gross salary is the the level I have chosen. To be clear, these funds serve a dual purpose. While the funds are available for emergency use, they also count in our retirement savings should we not need to use them. These funds are very liquid and accessible, being invested in short term bonds or money markets.

Build A Portfolio of Guaranteed Investment Income. In 2006, our investment income was equal to 1.29 times my gross salary. While that was an excellent investment return, only 19% of the investment income (or 25% of my gross salary) is guaranteed on a yearly basis. That part is invested in municipal bonds, CDs and money markets. That balance of the gain was due to growth in stock prices for both taxable and retirement portfolios.

It would be great if our savings could be guaranteed to generate about 30-50% of my gross salary on a yearly basis. This amount of guaranteed income would provide a good buffer should I ever need it as an emergency fund. This will be one of the items on which I will be working this year.

For more reflections on personal finance, check back every Saturday for the Reflections and Musings segment.

Friday, January 05, 2007

I have been talking to some people about the inevitable end to a career, retirement. Here are some of the key insights. There is more to life than your current job. Invest your new found time in your life.

Do more of your interests. Many people take vacations and do more leisure activities. Others spend more time on their hobbies, or change them into businesses. More time for family, especially grandchildren. Enjoy what the world offers. And as a friend told me, it's a good time to stop and smell the roses.

Learning something new. Try something you always wanted to do. Learn to play an instrument, buy the newest electronics, try the latest social networking site are among the hundreds, perhaps thousands, of things that are possible. Doing so will keep one's mind active and fresh.

Contribute differently. After my father-in-law retired from the Air Force, he began consulting for a R&D company on applying for government contracts. He later became the COO of the company. After retiring from there, he became a adjunct professor at a local university. I'm sure he will start another career after being a professor.

Many of my colleagues, who have retired, have gone on to different jobs (e.g. financial industry, small businesses) or volunteer work (e.g. tutoring). Not because they have to financially. All of them do not need the addtional money. It's because they want to continue to be contibuting and productive members of their community.

In today's world, there is more opportunity to do more after retirement. Especially, if one has planned well financially. Perhaps the mantra should be retire early and often:-)

For more articles on retirement, come back every Friday for our Reaping the Rewards segment.

Thursday, January 04, 2007

We didn't seriously consider getting all our estate planning papers in place until we were transferred on an international assignment. At the time, we were DINKS and weren't worried about how our estate was distributed.

However, as we prepared for the transfer, our Company's accounting firm recommended that we get legal affairs in order since other countries sometimes have different intestate laws (i.e. inheritance without a will) than the US. Without other guidance, their legal system will follow their laws. However, if the proper legal documentation is in place, they will honor the documents.

Here are the instruments we created:

Revocable Living Trusts. While our estate did not exceed the maximum tax free estate transfer amounts, we still chose this option. In addition to providing a tax free transfer of our estate, a revocable living trust provides additional benefits of having provisions should one be incapacitated and the proceedings on death remain private. The proceedings from probate of a will become public record.

Pour Over Will. Once a revocable living trust is created, the assets should be retitled into the trust. The pour over will cover assets that are not titled in the trust - e.g personal property and automobiles, which are typically titled to an individual.

Durable Power of Attorney. While the trust does have provisions should the grantor (i.e. beneficiary) be incapacitated, we also executed Durable Powers of Attorney. This gives my spouse the right to handle all my affairs should I be unable to do so.

Living Wills. This authorizes the medical caretakers to not take extraordinary means to keep one alive. My spouse signed one, but I did not. Personally, I still trust the judgment of my spouse over a document:-)

When we created these legal documents, we did not have any children. However, in anticipation of future children, the situation was written into the documents. So we did not need to revise our trusts when we adopted our daughter.

Disclaimer: I am not a financial advisor or attorney. Please consult your financial advisor and attorney before executing any of the above instruments.

For more My Wealth Builder financial approaches with previous or future generations, come back every Thursday for the segment on Crossing Generations.

Wednesday, January 03, 2007

I try to make our current year contributions to IRA and College Saving accounts as early in the year as possible, preferably in January. I would also do it for my 401K but the plan requires contributions be equally distributed over the remaining months in the year.

I make early contributions for the following reasons:

The funds will earn money tax free for a longer period. If a contribution to an IRA is likely, making one's 2007 contribution in January, 2007, instead of April, 2008 will provide an additional 15 months of tax free earnings.

No need to worry about looming deadlines. I always have enough other things to worry about at year end (Christmas holidays) or in April (with taxes due).

Psychologically, I feed good about being "ahead." I get to check off a New Year's Resolution right away:-) Making contributions in January clearly demonstrates my commitment to pay myself first. And it takes away any temptation to use the funds for something else.

For additional financial habits and practices that I have found useful, check back every Wednesday for The Practice of Personal Finance segment.

Tuesday, January 02, 2007

There were many excellent posts, causing the selection of two Carnival picks. My first Carnival choice is Living without a budget by Living Almost Large. Like the author, I do not use a detailed budget, but still manage my money well every month. (The secret is paying oneself first.) My second Carnival pick is Money, Matter, and More Musings'Gasoline Prices: Why the third decimal place?. This touched off a huge discussion at Digg.com, with a number of historical, marketing, mathematical, and psychological explanations.

My personal mission statement is still a work in progress. Even though I feel that it already captures the essence, I expect to finalize the wording over the next 6-12 months. Thus, there may be changes to the statement during this time. Here is my initial draft of personal mission:

It would be great if we (spouse and children included) are highly productive and contributing members of society and have fulfilling lives.

For reference, society includes the elements of faith, family, work and community.

From this life purpose, several goals can be developed for the different parts of faith, family, work and community. Since this is a personal finance blog, I will focus only on the financial problem definition and goals. Specifically, the financial elements primarily impact the family and work aspects.

For family, I have the financial challenge of:

How might we create a level of financial security that enables us to achieve our personal mission?

Regular readers of My Wealth Builder have seen numerous posts on what I am doing to meet this challenge. My overall goal is to create a stream of income in retirement equal to my current salary. The recent post on 2006 Results and 2007 Goals provides a good summary of the current status.

For work, I have the financial challenge of:

How might I create sufficient income in a career that substantially contributes to society and is fulfilling?

To date, I have only had one post on this challenge, Making College Part of a Wealth Building Plan, which discusses how college can be used to access higher paying jobs. From my experience, achieving higher incomes is the result of conscious choices and tradeoffs. And having a overall personal mission can be helpful when making these choices. I will provide more details on this topic in future posts.

For more details on these and other Strategies and Plans, check back every Monday for the next segment.

About Me

My wealth goal is to create a guaranteed yearly income stream equal to my highest salary for my retirement years. While I have developed a strategy to do this,
I am interested how others are thinking of achieving financial security for retirement.
This blog is a summary of facts, ideas, discussions, and action plans to achieve that goal.

Disclaimer

This is a personal blog about my thoughts, experiences and ideas on building wealth. The contents of this blog are for informational purposes only. No content should be construed as financial advice. Commenters, advertisers and linked sites are entirely responsible for their own content and do not represent the views of My Wealth Builder. All financial decisions involve risks and results are not guaranteed. Always do your own research, due diligence and consult your own professional advisor before making any decision. My Wealth Builder assumes no liability with regard to financial results based on use of information from this blog.

If this blog contains any errors, misrepresentations, or omissions, please contact me or leave a comment to have the content corrected.

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Disclaimer:
This is a personal blog about my thoughts, experiences and ideas on building wealth. The contents of this blog are for informational purposes only. No content should be construed as financial advice. Commenters, advertisers and linked sites are entirely responsible for their own content and do not represent the views of My Wealth Builder. All financial decisions involve risks and results are not guaranteed. Always do your own research, due diligence and consult your own professional advisor before making any decision. My Wealth Builder assumes no liability with regard to financial results
based on use of information from this blog.

If this blog contains any errors, misrepresentations, or omissions, please contact me or leave a comment to have the content corrected.